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What is a fund flow analysis?

GoCardless
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Last editedNov 20222 min read

A fund flow analysis is a financial document which you can create and use to analyse and understand the financial position of your business. More importantly, it sets out where funds are coming into your business and how they are being used. In some ways, it works along the same lines as a cash flow, but is more detailed. A fund flow analysis combines a cash flow statement with other data such as an income statement or a balance sheet.

Building a fund flow analysis

Putting a fund flow analysis together pulls together the data gathered on documents such as:

  • A balance sheet – this brings together details of the assets, liabilities and capital holdings in current accounts of your business across a specific period of time.

  • A profit and loss statement – this details the revenue taken in by your business and the expenses accrued. By detailing these metrics, it can produce figures for the loss or profit generated over a specific period. 

  • A cash flow statement – this document is similar to a fund flow analysis in measuring the flow of cash into and out of your business across a specific time period. The areas covered by a cash flow can include the costs of operating, investments that you’ve made and any finance taken on board. 

Why use a fund flow analysis?

You may look at the balance sheet for your business and decide that it includes all of the detail you need. The key flaw of a balance sheet and the reason why a fund flow analysis is more useful is that a balance sheet only provides a frozen snapshot: it details current liabilities, equity and assets, but doesn’t include information on the source of the funds and the uses to which those funds were put. 

Another benefit of a fund flow analysis over and above a balance sheet is that a fund flow analysis can cover more than one accounting period. In this way, it is used to track the changes in your business over a longer time span.   

Formatting a fund flow statement

Building a fund flow analysis involves pulling together two metrics:

  • A statement of changes in working capital – this measures the difference between current assets and liabilities on two balance sheets, covering the period of time for which the fund flow analysis is being created. 

  • Funds generated by operations – this figure is calculated using the profit and loss figures for the period being covered. Once you know the profit and loss, adjust the totals by including non-cash expenses like write-offs, taxes, depreciation and accrued interest. Once these figures have been added to the profit and loss accounts, the amount arrived at is the actual fund from operations. 

Once you have these figures in place, prepare your fund flow analysis. In simple terms, this is divided into two sections:

Sources of funds

In this section, list where the funds flowing into your business come from as well as detailing how they have changed over the period covered by the fund flow analysis. Sources of funds could include the following:

  • Funds generated by general operations

  • Sale of fixed assets

  • Sale of investments in the business

  • Any shares issued

  • Long-term loans

Application of funds

This section of the fund flow analysis creates a picture of where and how the funds coming into your business were used. Items included in this section of the analysis could include the following:

  • Losses deriving from general operations

  • Dividend payments made

  • Tax payments made

  • Any purchase of fixed assets

  • Any loan repayments 

Other items could appear on a fund flow analysis, but these are the most likely to crop up.

Benefits of a fund flow analysis

Building a detailed fund flow analysis creates a true picture of the financial position of your business, over and above simple net income or profit. It details where funds come from as well as where they go, enabling you to more accurately pick out trends over the longer term and plan for the future. Not only does the fund flow analysis show changes in the amount of income being generated and spent, it also shows the source of that income and the specific spending demands placed on it.  

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